S&l Regulator: Don`t Combine Deposit Funds

September 11, 1985|By John G. Edwards, Business Writer

ORLANDO — The Federal Deposit Insurance Corp. should solve its own problems with commercial banks, not try to take over the besieged fund for savings and loan associations, a federal official said Tuesday.

At a meeting of Florida S&L executives, Donald I. Hovde, one of three members of the Federal Home Loan Bank Board, criticized an FDIC proposal to merge the Federal Savings and Loan Insurance Corp. into the FDIC.

``The FDIC sits back there and talks about their alleged health and well- being,`` said Donald I. Hovde of the bank board, which regulates thrifts while the FDIC regulates banks.``I think the FDIC has more than its hands full.``

Speaking to representatives for 134 members of the Florida League of Financial Institutions, Hovde noted the increasing number of banks that are financially shaky because of bad loans to farmers, oil and gas producers, and foreign countries.

The S&L industry faces unprecedented problems, he said. During the last year, the FSLIC had nine S&L liquidations, compared to 18 for the prior 50 years.

He blamed a series of deregulatory steps which enabled S&Ls to grow rapidly by raising deposits through stockbrokers and to set their own interest rates for deposits. That led many S&Ls to take risks to place the large volume of loans at high interest rates.

The decline of inflation has exaggerated the risk exposure of S&Ls, he said. With inflation at its lowest since 1972, S&Ls cannot depend on collateral for loans to appreciate rapidly anymore, he said.

Despite those problems, ``the FSLIC is not insolvent,`` he said. ``We don`t intend to let it get to be insolvent.``

The bank board has increased its staffing and the pay of examiners who oversee the activities of S&Ls. He predicted the bank board will continue levying high assessments from federally insured S&Ls for the FSLIC fund.

``We are the best capitalized central banking system in the world,`` he said. While regulatory problems are mounting, he noted that the thrift industry is profiting from a bigger spread between the cost of interest paid savers and the yield of loans.

In June, the spread of 2.24 percent for the S&L industry was the highest in 30 years, according to the U.S. League of Savings Institutions.

Still, Hovde said too many S&Ls are setting ``insanity prices`` on the rates they pay savers.

``Folks, this kind of (deposit) pricing is costing this industry hundreds of millions upon hundreds of millions upon hundreds of millions of dollars,`` he said. ``It`s got to stop.``